Aviva reported full-year underlying operating profit of £2.2bn, up 35%. UK & Ireland Life drove performance, where the retirement division benefited from improved margins and earnings growth. Total life sales fell 7%, reflecting lower bulk annuity volumes. The value of new business rose 15% to £767m due to higher margins.
In general insurance, gross written premiums rose 8% to £9.7bn. An increase in claims and the cost to serve them pushed the combined operating ratio up from 92.9% to 94.6% (an increase means expenses rose faster than premiums).
Cash remittances (cash flowing from operating businesses to the group) rose 11% to £1.8bn. Solvency II shareholder cover, a key measure of balance sheet health, sits at 212% and remains well ahead of target.
The board proposed a final dividend of 20.70p (2021: 14.70p). That takes the total for the year to 31.00p (2021: 22.05p), in line with guidance. A £300m buyback will start immediately.
The shares rose 3.3% in early trading.
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Our view
Aviva's the latest insurer to push through hefty hikes for its general insurance premiums, a trend expected to continue over 2023 as the cost to service claims has risen in this inflationary environment. The tricky backdrop pushed underwriting profitability down a touch, but the diversified model showed its strengths as performance was resilient.
Investors have been well rewarded from the ongoing transformation at Aviva, with over £5bn in capital returns since 2021. 2023 looks set to continue that trend with a fresh buyback announced alongside full-year results and an improved dividend policy. That's all backed by a strong capital position, but no returns are guaranteed.
Aviva brings insurance, wealth, and retirement under one roof. The insurance arm centres around the UK and Canada. The latter has been a standout and now claims the number 2 spot in its market. General insurance in the UK is seeing more challenging conditions as higher claims and costs put pressure on underwriting profit.
Aviva's bulk annuity business, where Aviva takes on final salary commitments from pension funds, has grown rapidly. Though volumes were down last year, we'd expect a reversal of that trend in 2023. These contracts feed significant quantities of new assets into the business, which Aviva Investors can manage - increasing scale and profitability. However, each new insurance contract requires underwriting with some of Aviva's own capital, making expansion expensive.
Being a huge workplace pension provider is behind the logic to increase its presence in the wealth management market through the £385m acquisition of Succession Wealth in August 2022. There are also plans to expand the advisory offering to help achieve the goal of at least 10% growth in net flows to wealth. It's a challenging and crowded market, but progress looks good.
However, Aviva's ace in the hole strategically is that it's ahead of the game in digitisation. Controllable costs are falling, and long-term digitisation could help improve cross-selling. CEO Amanda Blanc seems to be making headway where her predecessors struggled. In its current format, Aviva seems to have a complementary business model, products that resonate with clients, and a sense of focus it's lacked in some previous guises. That should serve it well, although there are no guarantees.
Aviva key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
One of HL's Independent Non-Executive Directors is also a Non-Executive Director at Aviva plc.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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